2.1.4 Planning

Question 1

what is business plan

Answer 1

document which sets out the future plans for a business
how owner explains how turn idea into succesful business
–> to bank or investor

Question 1

why business plan

Answer 1

persuade lenders that business will make enough profit to pay back
attract potential investors
give direction
set targets and objectives that can be followed (SMART)
identify early on problem areas
monitor effectiveness
help decide what recourses are needed
help negotiate lower percentage to VC ot angel investor

Question 2

what does a businesss plan include

Answer 2

name of business
product service and market it is aimed at
human recourses: who will work there, manager, owner
production costs + potential supplier
premisis and how it will be financed (rent, lease)
4 Ps of Marketing (product, price, place, promotion)
financial information: projections on revenue, costs, profits, cash flow forecast, budget, sales forecast, balance sheet

Question 3

what is a cash flow forecast

Answer 3

=day-to-day running a business budget
=forecast of cash leaving and entering a usiness
shows where business will have shortfall
allows business to organize short-term cash borrowing to cover shortfall (overdraft)
out > in shortfall; in > out surplus

Question 4

cash inflow/outflow

Answer 4

cash into business at top of cashflow –> called income
cash out of business is cash that is being spend –> called expenditure
(opening balance is closing balance of next month + is a forecast so currently in month before)

Question 5

uses of cash low forecast

Answer 5

help control and monitor cash in and out of business
–> make comparisons
–> shows cash shortfalls –> business can arrange suitable finance
secure better deal on finance

Question 6

limitation cash flow forecast

Answer 6

only snapshot –< short time to make concrete decisions about business
only forecast (external shock)
not about profit –> only about cash in the business to meet short term debts
no full picture of business
very risky for owner to make decisions on this

Question 7

limitations of business plan

Answer 7

1. Uncertainty:
   → The future is unpredictable — plans are based on guesses, not facts.
2. Time-Consuming:
   → Making a detailed plan takes a lot of time and effort, which could be used elsewhere.
3. May Be Inaccurate:
   → Sales forecasts and cost estimates can be wrong, leading to bad decisions.
4. Lack of Flexibility:
   → If the business sticks too closely to the plan, it might miss better opportunities or fail to adapt to change.
5. False Sense of Security:
   → Just because there’s a plan doesn’t guarantee success — external factors (like economy changes) can ruin it.

Question 8

importance of business plan in obtainning finance

Answer 8

1. Builds Credibility and Confidence
   It reduces the perceived risk for banks or investors, making them more likely to offer loans or funding.
2. Financial Forecasts and Cash Flow Planning
   cash flow forecasts and break-even analysis.
   These help prove the business can repay loans or generate a return on investment.
3. Demonstrates Market Understanding
   Market research within the plan shows the business understands its customers, competitors, and growth potential — reassuring investors.
4. Sets Objectives and Milestones
   Business plans help clarify how funds will be used (e.g. equipment, staffing), and when profits are expected.
   Lenders prefer businesses with measurable goals.

❌
1. Plans Are Only Predictions
2. Lenders May Focus More on Collateral or Credit History
3. Over-Reliance on Numbers
4. Time-Consuming and Costly to Produce